2021 (12) TMI 33 - AAR - GST

Requirement of obtaining HSN Codes at the time of obtaining registration - composition levy under sub-sections (1) and (2) of section 10 - person engaged in Pan Masala and Tobacco products Trading - applicable tax rate on the supply of such Pan Masala or Tobacco products - applicability of tax rate prescribed under Notification No. 50/2020 - HELD THAT - The provisions relating to Composition. as contained in Section 10 of the GST Act 2017 contains certain conditions the presence of which excludes a person from taking the benefit of this scheme of Composition. One such conditions is given in Section 10(2)(b) which states that the benefit of this scheme shall not be available to a person who is engaged in the supply of goods that are not leviable to tax under this Act - As per explanation (ii) to Notification No. 14/2019 - CT. the rules for the interpretation of the First Schedule to the said Customs Tariff Act. 1975 (51 of 19751. including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall so far as may be apply to the interpretation of this notification. The list of goods to he sold from the Pan shop include all kinds of goods that are normally bought from a Pan Shop. Accordingly one of the goods that shall be sold from the applicant s Pan Shop is Gutka containing Tobacco or otherwise. The Gukta is a preparation of betel nuts and any one or more of lime katha (catechu) and tobacco whether or not containing any other ingredient such as cardamom. copra or menthol which is same as Pan Masala discussed supra. In a Pan shop the seller also generally makes a product akin to Gutka themselves by mixing of betel nuts lime kattha and tobacco containing or not containing other ingredients are sold which amounts to manufacture of Gutka. Preparation of Gutka in the Pan Shop is akin to manufacture on account of the process of preparation being that of mixing of different bought out ingredients 4nd the resultant product having a distinct name and use - the preparation of Gutka at the Pan Shop for sale is covered in the Second Proviso of Notification No. 14/2019-CT. In the Table given in Notification No. 14/2019-CT both Pan Masala and goods covered under Chapter 24 are listed as goods for which composition cannot be obtained. The case of the applicant is fully and squarely covered under the restrictive condition of Section 10(2)(b) and 10(2)(e) of the GST Act 2017.

Summary

Issues Involved:
1. Eligibility for the Composition Scheme under Section 10 of the CGST/SGST Act.
2. HSN codes required for registration under the Composition Scheme.
3. Applicable tax rate on the supply of Pan Masala and Tobacco products under the Composition Scheme.
4. Applicability of Notification No. 50/2020 on suppliers eligible for the Composition Scheme.

Issue-wise Detailed Analysis:

1. Eligibility for the Composition Scheme under Section 10 of the CGST/SGST Act:
The applicant, engaged in trading Pan Masala and Tobacco products, sought clarity on eligibility for the Composition Scheme given their turnover is less than Rs. 1.5 crores. The authority noted that Section 10 of the CGST Act, 2017, allows registered persons with a turnover not exceeding Rs. 1.5 crores in the preceding financial year to opt for the Composition Scheme. However, the law explicitly excludes manufacturers of Tobacco, Ice Cream, Pan Masala, and Aerated Waters from this scheme. The applicant's business involves trading, not manufacturing, of these products, which initially seemed to allow eligibility. Nevertheless, the authority determined that the preparation of Gutka (a mix of betel nuts, lime, katha, and tobacco) at the Pan Shop equates to manufacturing, thus disqualifying the applicant from the Composition Scheme under Section 10(2)(b) and 10(2)(e).

2. HSN Codes Required for Registration under the Composition Scheme:
The applicant faced issues with the GSTN portal not allowing the addition of HSN codes for Pan Masala and Tobacco products during registration under the Composition Scheme. The authority did not provide a ruling on this matter as the applicant withdrew this question during the hearing.

3. Applicable Tax Rate on the Supply of Pan Masala and Tobacco Products under the Composition Scheme:
The authority did not address this issue directly in the ruling since the applicant withdrew the question. However, it was implied that the tax rate would be governed by the standard provisions applicable to such products outside the Composition Scheme.

4. Applicability of Notification No. 50/2020 on Suppliers Eligible for the Composition Scheme:
The ruling did not specifically address the applicability of Notification No. 50/2020 due to the applicant's withdrawal of this question. The focus remained on the primary eligibility for the Composition Scheme.

Conclusion:
The authority ruled that the applicant is not eligible for the Composition Scheme under Section 10 of the GST Act, 2017, due to the involvement in manufacturing activities (preparation of Gutka) at the Pan Shop. Other questions raised by the applicant were withdrawn and thus not addressed in the ruling. The ruling remains valid subject to provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.